Esmark Steel cutting capacity to restore margins

NEW YORK  Esmark Inc. founder, chairman and chief executive officer James P. Bouchard is taking steps to right-size the companys Esmark Steel Group LLC subsidiary by shutting down 16,000 tons of slitting muscle and 2,000 tons of cut-to-length capability in the face of paper-thin margins and persistently sluggish utilization rates.

"We have decided to take capacity out of the U.S. market, right-size our current facilities and right-size the organization," Bouchard told an audience of steel distributors and service center owners and operators gathered at the Association of Steel Distributors fall conference in Las Vegas.

"The decisionfrom a macro viewpointbasically comes down to my belief that the overall economy is not going to improve very quickly," he said.

"I just see this as a slow-growth scenario. So keeping that capacity around waiting for additional orders to come in is, I think, close to insanity," Bouchard said.

"It has been a sleepless last couple of days. It has taken some soul searching. ... We also made some painful moves on personnel to make sure we have the right people running three facilities vs. four," he said.

"But I think it is the right decision," Bouchard added. "I think it also is the right decision for the industry."

Bouchard, who said the planned shutdowns would take effect Jan. 15, 2014, expects the consolidation to lift capacity utilization at Esmark Steel Groups three remaining facilities into the mid-90-percent range and deliver savings of some $400,000 per month.

To handle orders previously filled by the facility earmarked for shutdown, Sewickley, Pa.-based Esmark has negotiated an agreement with another processor. "The arrangement keeps additional capacity sitting there at bay if we need it for additional customers who may or may not come in," he said.